Increases to Minimum Monthly Wages from July 2022.

Responding to the expectations of employees during the past two years, on 12th June, 2022 the Vietnamese Government issued Decree 38/2022/ND-CP with many notable changes related to the Minimum Monthly Wages in the coming time.

1. The Minimum Monthly Wage increase by an average of 6% from 1st July 2022

It is essential to distinguish “Minimum Monthly Wage” from “Minimum Basic Wage”, terms that are often confused. Minimum Basic Wage is used by Government organisations as a the foundation for payroll calculations, allowances and other salary matters, and is also used as a threshold upon which the maximum payment for Social Insurance and Health Insurance are calculated.

In contrast, the Minimum Monthly Wage forms the basis for salary calculations and negotiations between commercial employers & employees, which is evidenced in labour contracts. It is also used as a threshold upon which the maximum payment for Unemployment Insurance (UI) is calculated. Minimum Monthly Wages are applied at different rates using “zones” that are to align for areas with different economic and living standards.

Effective from 1 July 2022, Decree 38/2022/ND-CP has adjusted the Minimum Monthly Wages by 6% compared to the provisions of Decree 90/2019/ND-CP. As follows:

2. For the first time, the Minimum Hourly Wages apply

Previously, although the Labour Code 2012 and the Labour Code 2019 both mentioned determining the minimum hourly and monthly wages, the Decrees regulating the regional minimum wages only referred to the monthly wage, not the Minimum Hourly Wage.

Accordingly, the Minimum Hourly Wage is the lowest wage as the basis for contracting and paying salary for employees applying the form of hourly pay, ensuring the salary according to the job or title of the employee working for an hour and completing the agreed labour or work norms must not be lower than the Minimum Hourly Wage.

The Minimum Hourly Wage applicable from 1st July 2022 as follows:

3. Provision on minimum wage higher than 7% for people who have passed apprenticeships and training

Previously, according to Decree 90/2019/ND-CP, the Minimum Monthly Wage was the lowest salary paid to employees who worked under normal working conditions, ensuring enough normal working hours during the month, and completing the agreed labour or work norms.

Employees who work in jobs that require apprenticeships or vocational training (i.e., vocational degrees, intermediates, colleges, universities…) are paid at least 7% higher than the prescribed minimum regional wage.

In Decree 38, this concept appears to have been removed. Instead, the Decree only stipulates that the monthly minimum wage is the lowest wage as the basis for agreeing and paying employees to apply the form of monthly pay.

However, on 17 June 2022, the Ministry of Labour, War Invalids and Social Affairs and the Vietnam General Confederation of Labour issued the Official Letter 2086/BLDTBXH-TLDLDVN providing guidance on implementation of Decree 38, stating that employers are required to pay at least 7% higher than the Minimum Regional Wages for jobs or titles that have been apprenticed or experienced vocational training, unless there is other mutual agreements between both parties.

4. Adjusting the areas where the Minimum Regional Wage is applied

In addition to increasing the Minimum Monthly Wages, Decree 38/2022/ND-CP also adjusts some areas in Zone I, II, III, IV thereby changing the Minimum Monthly Wage in some localities. As follows:

• Zone I: Addition of Thu Duc city due to being pooled from District 2, District 9 and Thu Duc District in Ho Chi Minh City.
• Some localities are moved from Zone II to Zone I: Ha Long City in Quang Ninh Province, Xuan Loc District in Dong Nai Province.
• Some localities are moved from Zone III to Zone II: Quang Yen town, Dong Trieu in Quang Ninh province; Hoa Binh city and Luong Son district in Hoa Binh province; Vinh city, Cua Lo town and Nghi Loc and Hung Nguyen districts of Nghe An province; Hoa Thanh town in Tay Ninh province; Vinh Long city and Binh Minh town in Vinh Long province; Bac Lieu City in Bac Lieu Province.
• Some localities are moved from Zone IV to Zone III: Van Don District, Hai Ha, Dam Ha, Tien Yen in Quang Ninh Province; Quynh Luu District, Yen Thanh, Diễn Chau, Do Luong, Nam Dan, Nghia Dan and Thai Hoa and Hoang Mai towns of Nghe An Province; Mang Thit district is part of Vinh Long Province; Hoa Binh district belongs to Bac Lieu Province.

Recommendation and Discussion

Given these changes in Minimum Regional Wage, it is important that companies incorporate these into their budgeting process, and review and recheck to ascertain that the stated salaries in labour contracts remain in accordance with the changes and their Zone. Payroll calculations will need to be updated in line with new changes, to properly reflect the maximum caps for UI contribution calculations.

1. Salary increases for employees who are receiving the Minimum Monthly Wage

As such, the lowest salary paid to employees permitted by law is equal to the regional minimum wage of that region.

Here, on 1st July 2022, when the Minimum Monthly Wage increases, enterprises must also increase wages for employees who are receiving salaries according to the regional minimum wage.

2. UI changes

UI is mandatory for all employees at all companies and applies to all contracts (definite and indefinite)UI is calculated as:

• Employee contribution: 1% of Gross salary
• Employer contribution: 1% of Gross salary

The maximum monthly UI contribution is capped at 20 times the Minimum Regional Wage for the Zone. Therefore, from 1^st July 2022 if an employee in Zone 1 earns greater than 20 x 4.680.000 VND, their UI contribution is capped at 936,000 (1% x 93,600,000) for both the employer and employee contribution.

The use of UI system has changed for individuals from when it was first implemented. Where an employee who becomes unemployed wishes to claim UI from the authorities, the benefit paid is calculated at 60% of their average salary for the previous 6 months of paid employment. Nonetheless, the benefit is capped at 5 times the Minimum Regional Wage relevant to the Zone of the employer (i.e., 23,400,000 VND for Zone 1).

Where an unemployed individual enters into new employment agreement, the unused unemployment benefits/rights will carry over for future use.

3. May have to increase the payment of Social Insurance, Health Insurance and UI premiums monthly

According to the guidance in Decision 595/QD-BHXH, the employer will have to pay Social Insurance (SI), Health Insurance (HI) and UI at certain rates calculated based on the salary fund paid for Social Insurance of the employee. Concrete:

According to point 2.6 Clause 2, Article 6 of Decision 595 also states that the monthly salary paid for compulsory Social Insurance is not lower than the regional minimum wage.

Therefore, if you are paying Social Insurance premiums to employees according to the Minimum Monthly Wage from 1st July 2022, the monthly amount that enterprises must spend to pay the above-mentioned compulsory insurance types will increase significantly compared to before.

In addition, with this change, companies paid attention to adjusting the payroll policy, salary scale to match the upcoming salary adjustment process.

Contact our teams for expert support and further information on managing corporate compliance in Vietnam.

Matthew Lourey, Managing Partner | Email: m.lourey@acclime.com

Tran Huynh, Head of Payroll Services and HR Consulting | Email: tran.huynh@acclime.com

Truc Phuong Nguyen, Head of HR Payroll | ConsultationEmail: trucphuong.nguyen@acclime.com